Status of Women Committee on Nov. 17th, 2009

[The Vice-Chair (Ms. Candice Hoeppner (Portage—Lisgar, CPC)), Conservative, Candice Bergen]

I'd like to call to order meeting number 40 of the Standing Committee on the Status of Women.

We're very pleased to have witnesses here today from Watson Wyatt Worldwide. They are Terence Yuen, senior economist, and Martine Sohier, senior consulting actuary. We also have Jean-Pierre Laporte, as an individual, and from the Conseil d'intervention pour l'accès des femmes au travail, we have Ruth Rose-Lizée.

Each of you has 10 minutes to present, and then we will have questions and answers.

Perhaps the first presenter would like to begin. We'll start with Watson Wyatt Worldwide.

Thank you.

[Terence Yuen, Senior Economist, Canadian Research and Innovation Centre, Watson Wyatt Worldwide]

Thank you for inviting us to present at today's meeting.

There are many issues, in fact, that we can discuss under the general theme of women and pension security, ranging from the high poverty rates among women living on their own to the longer average life expectancy of women compared to men. However, in light of the time restrictions, we will focus on the issue of employer-sponsored pension coverage in Canada, and particularly on the difference between men and women working in the private sector.

We note that while statistics indicate that the percentage of women covered by a private pension plan has increased over time, there is still a substantial gap between women and men. As we'll discuss, we believe this gap is caused by a combination of the industries women tend to work in and the percentage of women working part time. We believe there is a need to take steps to increase pension coverage levels for women, and for Canadians as well, and we have some suggestions on how to accomplish this.

Many studies have shown that the number of women covered by employer-sponsored pensions has been rising over time. In 1978, less than 15% of the female working-age population were active members of workplace pension plans. The number has increased to over 20% in 2008. This trend is driven both by increasing participation of women in the labour force and by revisions to pension legislation that require employers with pension plans to include part-time workers.

At first glance, the gap between men and women has narrowed substantially over the past three decades. Indeed, the 2008 numbers from Statistics Canada show that the overall coverage is very similar for male and female workers. However, if we exclude the public sector and focus only on the private sector, the coverage among women, at 23%, remains significantly lower than among men, at 32%.

There are two main reasons. First, female employment in the private sector tends to be more concentrated in the service sector, which consists of a lot of small firms without pension plans. In contrast, a larger proportion of male workers are employed in the goods-producing sector, which tends to have larger and more heavily unionized employers, who are, therefore, more likely to offer pensions to their employees.

The second reason, perhaps a surprising one, is the difference between male and female workers within industries. To give you an example, in 2008, 42% of men working in the manufacturing sector had pension coverage, compared with only 33% of female workers in that sector.

In sum, to increase pension coverage among women working in the private sector, we need to answer two fundamental questions. First, how can we increase pension coverage in small and medium-sized companies in the service sector? Second, what type of pension system would be most helpful to non-standard and part-time workers?

I will now turn things over to Martine, who will discuss some possible solutions to increase coverage in light of the situation I have just described.

[Martine Sohier, Senior Consulting Actuary, Retirement, Watson Wyatt Worldwide]

As we think about the solutions to increase pension coverage and the adequacy of pension savings for women working in the private sector, we need to consider the following factors.

Many women face interruptions in their working career, generally to take care of children and other family members. These interruptions translate into fewer years of potential pension coverage for women who have access to a pension plan.

As women leave and re-enter the labour force, they most often transition into new jobs. This means that new waiting periods must be observed before they qualify for membership in a new pension plan.

We know that part-time work is more prevalent among women than men. Part-timers may accrue significantly lower pension accruals during their working period, which can easily range from a decrease of 20% to 40% compared to full-time employees.

Women still have a longer life expectancy than men at retirement, which translates into the need to accumulate additional pension savings. Under current economic conditions, women may need to save between 8% and 10% more than men to maintain the same standard of living during retirement.

As we examine ways to increase coverage for women in the private sector, we need to consider new pension models that offer flexibility to accommodate women's working patterns. Solutions should also consider the longer life expectancy of women as well as the need for portability. Increasing pension coverage is of course more urgent for smaller firms, as well as for industries that do not offer pension plans.

Traditionally, the vast majority of pension plans have been either defined benefit or defined contribution plans. There has been a growing concern among employers about the financial risks associated with DB plans, which has been amplified by the current economic conditions. In response to this concern, many companies have now closed their DB plans. While some have replaced them with DC plans, there are concerns that many such plans will not provide an adequate income replacement stream for retirees. These concerns highlight the need for flexibility in developing possible ways of increasing pension coverage and suggest that plan designs beyond the typical DB and DC spectrum be considered.

One possible solution to the coverage issue is to expand the public pension system. For example, Alberta and B.C. are proposing the creation, either nationally or regionally, of a voluntary supplementary DC plan on top of the existing Canada/Quebec Pension Plan. While there are many ways to add another layer of C/QPP, the fundamental idea is to implement a provincial or national plan targeting Canadians not covered by an employer-sponsored pension plan. While the current public pension system, including OAS, GIS and C/QPP, should replace between 30% and 40% of income for average workers, the additional layer could potentially increase their income replacement ratio to a range varying between 50% and 70%.

Another potential solution is to focus on increasing coverage and pension savings among small and medium-sized companies. One way to do this is to encourage the formation of multi-employer plans that can be industry or trade based. The advantage of multi-employer plans over a second tier of C/QPP is to add flexibility and to actually meet the special needs of employees in different companies or industries.

Under a DC approach, the employer would contribute a minimum fixed amount with a corresponding employee contribution. For example, a 2% contribution from both the employer and employee could bring the income replacement ratio for the average worker to a total target of approximately 50% to 60%, including OAS and C/QPP. Employers would have the opportunity to contribute additional amounts as they wish. Additional employee contributions would be encouraged by the fact that employers would be able to make matching contributions aligned with each employer's desire to contribute. In addition to increasing pension coverage and savings, women participating in these plans would be able to contribute during their years of unemployment as well as to complement their pension savings during their part-time working years.

These larger funds would benefit from lower management fees and professional investment management oversight.

Partial and gradual annuitization should be offered among these plans to guarantee an income during retirement. It could even be mandated to a certain extent to ensure a minimum guaranteed income at retirement. By gradually converting a small amount of the accumulated pension savings each year into a lifetime annuity, a guaranteed income would be built over the years. Unisex rates should be used in the purchase of these annuities.

An alternative to a DC model would be to implement a plan with a target DB where risks are pooled among plan members. Under this approach, the employer contributions would also be limited to a fixed amount. In the case of asset insufficiency, benefits could be reduced. This model allows for the pooling of longevity risks as well as for the pooling of investment risks between generations. These plans also benefit from lower management fees and professional investment management oversight.

There is clearly a need to expand pension coverage and increase savings for Canadian women working in the private sector. To achieve this expansion, we need to develop new ways for women to save for their retirement, as well as to alleviate for the lower pension savings due to the non-traditional working patterns.

In summary, the key elements to consider include increasing coverage through the creation of multi-employer plans or national or provincial plans, encouraging additional savings through adequate employer matched contributions, increasing pension savings through access to a pension plan in years of unemployment or part-time work, and providing access to larger funds to benefit from lower management fees and professional investment management oversight.

Thank you very much for providing us with the opportunity to address pension coverage issues for women working in the private sector.

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

Thank you very much.

We will now go to Jean-Pierre Laporte, please.

[Jean-Pierre Laporte, Lawyer, As an Individual]

Committee members, my name is Jean-Pierre Laporte. I am a pension lawyer with the firm of Osler, Hoskin & Harcourt LLP, in their Toronto office.

I've been practising in the field of pension law since 2001. I was a member of the executive of the pension and benefits law section of the Ontario Bar Association. In that capacity I've assisted in the preparation of submissions to the Expert Commission on Pensions of Ontario. I've also written about pension plan issues. For example, I published an article with Mr. Sheldon Wayne on esoteric products such as individual pension plans, and also on plan administration issues.

My first contribution to the development of pension reform came in 2004, when I proposed for the first time the creation of a supplemental Canada Pension Plan solution to enhance coverage in Canada. I made this proposal in an article published in Benefits and Pensions Monitor, a trade publication.

Your standing committee has been tasked with the general topic of women and pensions. I have reviewed some of the evidence given by other witnesses to this committee and I do not think it is useful to go over the statistics that officials from various governmental agencies have already supplied to this committee. Rather, in the limited time that I have, I would like to share the concept of my supplemental Canada Pension Plan solution and why I think it is tailored to assist Canadian women in saving for their retirement.

We know that a very large portion of people working in the private sector do not participate in pension plans. At best, their employer might provide access to a group RRSP, a retirement savings plan. Group RRSPs never provide the certainty of a set pension amount in retirement. Also, very often the contributions made by employers under a group RRSP are too low to generate a sufficient pool of assets to ensure a comfortable retirement. Moreover, in a group RRSP, it is the employee who has the ultimate responsibility for managing the retirement contributions and investing them in the market. Finally, the financial products available under group RRSPs are often more costly on a unit cost basis than under a pension plan. This is because pension plans, especially large ones, can take advantage of economies of scale and do not have a lot of marketing costs.

What is the result? Women who work for employers who don't offer any kind of retirement plan are the worst off. The same applies to all the stay-at-home moms who are working but just not getting any T4 income. If they're lucky enough to be in a group RRSP--and I'm talking about those who are not in the home--they pay higher fees. They have to be financially sophisticated to manage their money or else ask for advice, pay for that as well, and hope that by the time they retire the stock market hasn't collapsed.

While I'm oversimplifying a lot, generally this is the lay of the land.

The supplemental Canada Pension Plan solution is designed to overcome all these issues and to ensure that pensions are provided to all Canadians, regardless of whether they work at home, in a small corner store, as professionals, as consultants, or even in a large company. The basic tenets are as follows.

First, why not allow Canadians to contribute in excess of the modest limits currently found in the CPP--this year it is $2,118.60 for an employee--all the way up to the limit found in the Income Tax Act for defined contribution plans? That limit this year is $22,000.

Second, let's use the existing CPP and EI payroll system that every employer has to abide by to collect these additional voluntary contributions from the employees and the employers and have them administered by an impartial arm's-length-from-government body such as the Canada Pension Plan Investment Board. The facilities and expertise are already in place. There would be no need to create a new bureaucracy.

Third, the CPPIB, or a sister board or sister agency, could then turn to the private sector and seek, through open and transparent bidding processes, the best investment management expertise that money can buy. The only difference would be that because of the huge scale of this plan, the unit costs that the financial institutions would charge would be a fraction of what an individual has to pay at the retail level.

Number four, we could also allow people who are not currently employed by anyone to contribute some more modest amount of money to the supplemental plan. There is no reason in my mind why someone who is at home looking after children should not be allowed to save for their retirement.

Number five, employers would have the option of making 100% of the contributions, or no contribution whatsoever--I'm thinking here of a very, very small employer that just doesn't have any money for anything else but paying minimum wage--or anything in between. This means that for small businesses that have trouble making ends meet and that are paying minimum wage, the supplemental CPP would not be an extra payroll tax. However, bonuses could be paid into the plan if the business has a good year; and employers, even if they don't contribute or if they opt not to contribute, would still be obligated to remit the employee portions if the employee decides to put money into the supplemental plan.

So let me talk briefly about supplemental CPP and women. This brings me to the final point. How would this reform help women?

For one thing, allowing a woman to participate in a pension plan even when she is not actively in the workforce is an important first step in building up adequate retirement savings. Moreover, having the professional staff of a world-class pension plan like the CPP invest the moneys instead of having someone who is busy juggling work life and home life is another definite plus, in my mind. Having the reform be purely voluntary also helps, because there would be no job-killing payroll tax for businesses that just can't afford to participate, but there would still be the opportunity for those who want to save to participate--the employees. We know that many women, unfortunately, have been relegated to less-well-paying jobs that fit within that category, so this reform would help them in a very significant way.

The tremendous economies of scale translate into huge savings for Canadians. Some preliminary calculations I have made suggest that each and every year, assuming a modest participation rate, Canadians would be able to put away another $10 billion into their own savings accounts instead of paying those in fees. And this is every year. The beauty of this is that it will not cost the taxpayer anything, because contributions to pension plans are tax deferrals; they're not tax expenditures. This means that while in the year the contribution is made there is less tax collected, as you know, when you get your RRSP refund in April, the money that has been contributed with interest becomes taxable when it is withdrawn from the fund. So it becomes really an accounting exercise. This is very different from the spending on social programs where, once the money is spent, it's gone for good.

So by pre-funding people's retirements, we are taking pressure off the generations of tomorrow, the taxpayers of tomorrow, our children and grandchildren. This means that we allow for more money or tax dollars for other worthy programs, such as child care spaces, better schools, and the list goes on.

I'll conclude my remarks here. Thank you so much.

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

Thank you very much.

We'll now go to Ruth Rose-Lizée, please.

[Ruth Rose-Lizée, President, Conseil d'intervention pour l'accès des femmes au travail]

First of all, I would like to add that I am also an adjunct professor of economics at the Université du Québec à Montréal. For 30 years I have been working with key women's groups in Quebec on the issue of retirement plans. This summer, we provided the Minister of Finance with...

Can you hear me?

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

Can everybody hear? Mr. Van Kesteren?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

The audio from the transmission is louder than the translation.

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

It sounds like the audio is louder than the translation is.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

How are we going to get around that, then?

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

We'll continue and we'll try to make those adjustments.

You can continue.

[Ruth Rose-Lizée]

I've been advising women's groups for 30 years. In the summer, we provided the Minister of Finance with our comments on the proposed amendments to the Canada Pension Plan as set out in Bill C-51. So, in essence, I am also speaking on behalf of the 13 other women's groups in Quebec, including the Fédération des femmes du Québec and several other major groups.

I'd like to address three points. First of all, I'd like to refer to the Canada Pension Plan and to the proposed amendments to it as found in Bill C-51. I'd also like to address the proposed creation of a voluntary account, in the manner which was discussed earlier on by my two colleagues. Then, I would like to refer to specific demands from women's groups to enhance their retirement income. Finally, I would like to conclude with a few remarks on statistics which would allow for gender-based analyses to be carried out.

I have also sent to your analyst, Ms. Julie Cool, a brief we tabled before a parliamentary committee in Quebec, having to do with a change to the QPP. This document contains a great deal of statistics and information on women and pensions in Quebec. However, it has not been translated.

Bill C-51 seeks to cut pension benefits for all individuals retiring before the age of 65 by increasing actuarial adjustments. First of all, we are very worried by the fact that this legislation has received practically no media coverage and that no specific parliamentary committee was struck to address the issue, nor have there been any broad-ranging public discussions on it. We are convinced that it will disproportionately affect women rather than men. In Quebec, we know that women retire earlier than men, often because they stop working to care for a spouse, an older person, someone who is ill, or a parent, or because their spouse is retiring and they decide to retire at the same time despite the fact that, in general, they are younger than their spouses. We therefore see no reason for cutting benefits. We believe that would in fact lead to greater poverty for seniors, especially women.

We are not very enthusiastic about the voluntary contribution measures precisely because they are voluntary. Moreover, we believe that it will become an additional tax advantage for the wealthy who are already saving enough for their retirement whereas middle class individuals who contribute a modest amount to their RRSPs do not do so enough to ensure continuing income upon retirement. They would still not be contributing enough to make a difference.

Rather, we support improving mandatory premium-based public plans like the CPP and the QPP. We believe once this becomes the modus operandi for employers and staff, people will adjust. We would also like to note that our contributions and benefits, here in Canada, are far lower than those of European countries, for instance.

Let's get back specifically to measures to assist women. We have also found that only a public plan can consider the fact that people do contribute to a country's economic growth through unpaid work.

There are already three ways to take this contribution through unpaid work into account within the Canada Pension Plan and the Quebec Pension Plan. First of all, a woman who is responsible for a child under the age of seven and whose contributions are less than her average contributions over the course of her career can exclude these years from her pension calculations. We believe that this right of exclusion should be converted into an inclusion, in other words that pension credits should be allocated automatically; we would suggest they represent 60% of the maximum insurable earnings, because those who benefit the least from this measure are, for instance, women with several children and who, therefore, tend to re-enter the workforce less, or often work part time. The automatic allocation of credits would meet the needs of these women, based on the number of children they have.

We believe the same should apply to individuals who stop working to care for disabled or ill adults, a task which is often women's work as well, in 75% to 80% of cases.

The second measure regarding women has to do with surviving spouses' pensions. In Quebec, they are more generous than elsewhere in Canada, but on the other hand, the orphan's pension is lower. In our brief, we would suggest decreasing surviving spouse benefits to help fund the measure I will refer to in a moment. In the past, surviving spouses' pensions were designed to consider the fact that when women got married, they would have children. So, the purpose was to consider the fact that women cared for children. But, increasingly, there is no automatic correlation between marriage or cohabiting and having children. So, we prefer measures that directly recognize the work women do with their children.

Finally, the third measure which would put women's pensions on a somewhat even playing field with those of men is the sharing of credits which is governed by family law in the various provinces. We believe that that is a good measure. It ensures fairness within a couple. That said, in Quebec, we have data on the number of cases of sharing and what that means and for whom, yet in the documents I consulted from Human Resources and Skills Development Canada—

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

Excuse me, Ms. Lizée, your time is actually almost up, so if you could just complete your thought, that would be great.

Thank you.

[Ruth Rose-Lizée]

I said I would conclude with a few remarks on statistics, but on the specific issue of the sharing of credits, I was unable to find any statistics. I did a search and managed to find almost all the statistics I needed, but I would have liked to have found them within one publication or a series of publications to be found more readily on the Service Canada site.

Thank you.

[The Vice-Chair (Ms. Candice Hoeppner), Conservative, Candice Bergen]

Thank you so much for that.

We will begin our first round of questions. I'll remind you that the question and answer time for this first round is seven minutes, and that includes both the question and answer portion.

We will begin with Ms. Neville.

[The Honourable Anita Neville, Liberal, Anita Neville]

Ms. Lizée, I wonder if you could elaborate briefly on the statistics. You didn't give them to us. Where are you referring us to?

[Ruth Rose-Lizée]

I referred to the Quebec Pension Plan and to the percentage of people receiving benefits from the Quebec Pension Plan and the Canada Pension Plan. You can find figures in publications, but they are not expressed in terms of a percentage of the population. That would be an interesting thing to do.

Moreover, we need numbers and amounts. That is how we see that women's contributions are less than those of men, because their salaries are lower than those of men. Equivalent statistics can be found for Old Age Security and the Guaranteed Income Supplement. Again, I found partial information in one publication. You have to look into data on revenue sources to find this information.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

I'm sorry to interrupt you because I have very limited time.

Would you mind letting Ms. Cool know where those statistics are or forward them to her? It would be very helpful to us. Thank you.

My question is to Mr. Yuen and Ms. Sohier.

You presented a very creative approach to us for private pensions. At least--maybe it's my ignorance--I haven't heard it before. Has what you're presenting been implemented in any other countries?

[Martine Sohier]

It's actually being implemented in the United Kingdom. There are similar models around the world that are being implemented--maybe not exactly the way we have anticipated it, but there are similar models around the world.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Obviously people are subscribing to them?

[Martine Sohier]

Yes.

Of course, you need to think about whether it would be mandatory or voluntary. Again, that's something crucial that the government would need to think about. If you mandate a small employer and employee contribution, then you can at least encourage savings for those who do not already belong to a pension plan. We're not talking about those people who are already covered by a pension plan; we're thinking about those who are not covered, maybe mandating a small amount of contributions from both the employee and the employer and having the opportunity to contribute to a larger-scale fund, which could contribute to additional savings.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

One of our concerns--and Mr. Laporte, you certainly addressed it--is about women who are not in the formal workplace but who are in the home. Would this have any applicability to them, and if so, how?

[Martine Sohier]

We were thinking that you could actually use deemed earnings, so maybe earnings when you quit the workforce and increase it with indexing. This already exists in some pension plans when you have a period that you can recognize to that effect with indexing, but you would have a maximum amount of time to do so. But then if you interrupt your work, you cannot be covered by a pension plan. Under the proposed model, you could actually use deemed earnings and contribute on the basis of these deemed earnings.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Thank you.

I have lots of questions. I'm going to go back to Ms. Rose-Lizée, because you made a comment about--don't make a face--survivor benefits. You're recommending to reduce survivor benefits, but I didn't understand what you were suggesting to replace it with.

Could you speak to that?